I wanted to sell my 2007 Toyota Camry. The Kelly Blue Book value was $14,395. I listed the car on Craig’s List and the phone calls started coming. John made an appointment to come see the car. He pulled up in a 2000 Ford Taurus. He’s was wearing jeans and a golf shirt – looked all right. He wanted to take it for a test drive. I told him a good route and gave him the keys. I haven’t seen or heard from John since. I haven’t seen my car since then either.
What? He seemed nice. Should I have held his driver’s license or a credit card? Should I have made him write me a check for $1,000 to hold until he got back? Should I have taken collateral?
Ahhhh . . . collateral. It’s that fancy term that we’ve been using our entire lives. In grade school, we called it trading. I got to use your glove and you took my football. As adults, seeking funding from strangers, we call it collateral. Think about it . . . why would a stranger who is in the business of making money by loaning money, give money to a complete stranger on a promise that it would be paid back? That’s more irresponsible than me giving my keys to John.
So next time you go look for financing, think long and hard about what you are willing to collateralize. What valuable stuff (properties and securities are the most attractive) are you willing to let the bank have if you can’t pay back the money.
I’m sitting at the MultiFunding booth in the Exhibitor Hall at the ASBDC Conference (Association of Small Business Development Centers), and the image of the Nestle Quik Rabbit jumps into my head. What? What would you be thinking about?
The rabbit was always in a hurry. He made chocolate milk quickly and drank it even quicker. In this hall, I’m surrounded by vendors that are selling fast solutions to small businesses – social networking, franchise matching and lead generation. Their objective is to sign up people quickly and get them on their way. This may work for certain aspects of a small business, but it is a terrible approach to financing.
There are so many financial products available to small businesses. The wrong one at the wrong time can be catastrophic. Therefore, you should always take your time when considering financing. First, learn about all of the options – do your homework! Second, figure out which one, or which combination of a few, is best for you. Third, find a trusted company to help you get funded.
As the old adage goes, haste makes waste — but it makes awesome chocolate milk!
In 1999, Tony Hsieh invested in a startup called Zappos. The vision was to be the dominant e-commerce seller of shoes. Needless to say, many thought this was a wacky concept – even during the frothy days of the dot-com bubble. Even Hsieh was unsure.
But there were a couple things that made him think Zappos had merit. First of all, people weren’t going to stop buying and wearing shoes. Next, it’s a good bet lots of people will eventually buy them from the Net. Why? During 1999, the US shoe market was $40 billion, of which $2 billion came from catalog sales. So isn’t the Net a better option than using a catalog? Definitely.
However, getting people to change their ways is not easy. And as a result, Zappos almost failed. By late 2000, Zappos was out of money and bankruptcy seemed inevitable.
For Hsieh, it meant that he needed to find ways to build a solidly profitable company. While this included a variety of strategies, it also meant a focus on strong financial metrics and planning.
Hsieh wanted the whole company to measure the gross profit levels on everything. This is the revenue minus the cost of goods sold, which consists of inventory and salaries that are directly related to the revenue.
Why the obsession with gross profit? The main reason is that it shows if a business model is viable. After all, if a company is unable to produce a decent gross profit, it will never work. It’s that simple.
Of course, Hsieh’s financial thinking was spot-on – and paid off big. In 2009, Hsieh sold Zappos to Amazon.com for a cool $1 billion.